Actions of Visa (NYSE: V) has fallen 14.17% in the past three months. Before we understand the importance of debt, let’s take a look at the amount of Visa debt.

Visa debt

Based on Visa’s financial statements as of November 18, 2021, long-term debt is $ 19.98 billion and current debt is $ 999.00 million, for a total debt of 20.98 billion. billions of dollars. Adjusted for $ 16.49 billion in cash equivalents, the company’s net debt stands at $ 4.49 billion.

Let’s define some of the terms we used in the paragraph above. Short-term debt is the part of a company’s debt that is owed for less than one year, while long-term debt is the part for more than one year. Cash equivalents include cash and all liquid securities with maturity periods of 90 days or less. Total debt equals current debt plus long-term debt minus cash equivalents.

Investors look at the debt ratio to understand a company’s financial leverage. Visa has total assets of $ 82.90 billion, making the debt ratio of 0.25. Typically, a debt ratio greater than one indicates that a considerable amount of debt is financed by assets. A higher debt ratio can also mean that the company could be exposed to a risk of default if interest rates were to rise. However, debt ratios vary considerably from sector to sector. A debt ratio of 25% may be higher for one industry and normal for another.

Significance of debt

Debt is an important factor in a company’s capital structure and can help it achieve growth. Debt generally has a relatively lower cost of financing than equity, making it an attractive option for executives.

However, due to interest payment obligations, a company’s cash flow can be affected. Stock owners can keep excess profits, generated by debt capital, when companies use debt capital for their business operations.

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